Collision Insurance Coverage Explained
What is Collision Insurance Coverage?Collision insurance is a type of automobile insurance coverage that covers the cost of repairs or replacement of your vehicle if it’s damaged in a collision with another vehicle or object, such as a tree or fence, regardless of who is at fault. Unlike liability insurance, which covers the other party’s property damage or medical expenses if you’re at fault in an accident, collision coverage is for your own vehicle’s damages.
Why is it Important?
- Protection from Out-of-Pocket Costs: If you’re involved in an accident, the costs of repairs can add up quickly. Collision coverage helps alleviate these costs.
- Leasing or Financing: Many lenders require borrowers to carry collision insurance to protect their investment in your vehicle.
- Peace of Mind: Knowing that damages to your vehicle will be covered can offer peace of mind, especially in areas with high traffic density or where accidents are frequent.
What Does It Cover?
- Vehicle Accidents: Damages to your car from colliding with another vehicle.
- Single Car Accidents: Damages from hitting an object like a pole, fence, or tree.
- Rollovers: If your car flips over, collision insurance can cover the repair costs.
When Do You Need It?
- New or Expensive Cars: Higher-value cars cost more to repair or replace.
- Dense Urban Areas: More vehicles on the road can mean a higher likelihood of accidents.
- If Still Paying Off a Car Loan: Most lenders will require it.
How Does Deductible Work?When you choose collision insurance, you’ll select a deductible. This is the amount you’ll pay out of pocket for repairs before the insurance kicks in. For example, if you have a $500 deductible and $2,000 in damage, you’ll pay the first $500 and the insurance will cover the remaining $1,500.
Limitations and ExclusionsAlways read your policy closely. Some policies might not cover damages if you were driving under the influence or if an unauthorized person was driving your car. Collision insurance coverage is a crucial aspect of comprehensive auto insurance, especially for those with newer vehicles or in high-risk areas. Always assess your needs, understand the terms, and compare different offers before settling on a policy.
Collision insurance covers damage to your vehicle resulting from a collision with another vehicle, an object like a tree or fence, or a rollover. It does not cover damage to another person’s vehicle or property, or injuries to you or others.
Collision insurance is not legally required, but if you have a loan or lease on your vehicle, your lender will likely require you to carry this coverage.
Your deductible is the amount you agree to pay out of pocket before your insurance coverage kicks in. For example, if you have a $500 deductible and your car repairs cost $2,000, you’ll pay $500, and your insurance will cover the remaining $1,500.
While collision insurance covers damage to your car resulting from a collision, comprehensive insurance covers non-collision related events such as theft, vandalism, natural disasters, and contact with an animal.
The settlement amount is typically determined by the actual cash value of your vehicle at the time of the accident, minus your deductible. If repairs would cost more than the car is worth, your car may be declared a total loss, and you’d receive the car’s actual cash value.
Collision insurance generally extends to rental cars, but it’s always best to confirm with your insurance provider. Some credit cards also offer rental car coverage when you use the card to pay for the rental.
Carrying collision insurance will increase your premiums, but the exact amount varies depending on factors like your vehicle’s value, your driving history, and your deductible amount.
Yes, you can drop collision coverage on an older car, especially if the car’s value has depreciated to the point where it may not be worth the cost of the insurance. It’s a personal decision that depends on your financial situation and willingness to take on risk.
To file a collision insurance claim, you should contact your insurance provider as soon as possible after the accident, provide them with the necessary information and documentation, and follow their guidance for getting a repair estimate and having repairs made.
Collision insurance covers your vehicle’s repairs even if you’re at fault for the accident. However, being at fault could lead to an increase in your insurance premiums at renewal time.